Bottom Line: Flexible, adaptive supply chain management is an overlooked but vital component of a company’s overall innovation strategy.
In the wake of the holiday shopping season, when analysts and marketers reflect on why new products flopped or flourished, the discussion typically revolves around consumer-oriented tactics such as pricing, branding, and distribution. But the same people largely overlook the nuances of new product launches, which are affected by front-end factors such as coordinating with supply chain constituents and closely monitoring competitors’ offerings. This oversight is all the more surprising given that commentators have called the rollout “the least well-managed phase of the entire innovation process.”
Studies estimate new product failure rates to be as high as 90 percent in some categories, so companies clearly need all the help they can get. And it stands to reason that the more knowledge companies can glean from their supply chain constituents — including suppliers, consumers, and rival firms — the more likely it is that their product launch will meet with success. But a new study suggests things are not that simple. It’s impossible to absorb and use the varied information that flows in from external sources unless a company has an adaptable supply chain management system that enables it to anticipate rapidly shifting market trends and tweak product designs on the fly. Such flexibility, this study argues, is a vital component of overall innovative capabilities. And it helps shed light on the “fuzzy front end” of new product development — that tricky, uncertain phase that runs from idea genesis to concept refinement.
In theory, enhanced technical expertise should help firms develop more realistic commercialization plans, design better product features, and decide on launch strategies that meet the expectations of consumers and allow managers to quickly exploit new opportunities. But technical expertise, although necessary, isn’t sufficient. Many researchers have argued that companies that lean too heavily on the narrow or specific viewpoints of supply chain constituents tend to unveil new products that are muddled, unoriginal, or focus-grouped beyond distinction. Information overload can also increase the risk of project delays, whereas relying too much on partners’ feedback can cause companies to prematurely lock in underperforming suppliers.
The authors surveyed managers, engineers, and vice presidents at 229 large U.S. manufacturers, two-thirds of which had annual sales of more than US$250 million. The industries involved were varied and included chemicals, consumer products, electronics, transportation, and pharmaceuticals. The researchers found that not all sources of intelligence had the same influence on launch success, which they defined as how well the new product met the company’s budget, commercialization, and timeline objectives. Taken together, however, the intelligence sources interacted in a way that could improve the likelihood of profitable rollouts.
For example, information from suppliers that can be integrated into a company’s product development process has a major impact on adaptability. (This is presumably because such intelligence pertains to the processes and materials associated with supply chain management.) But the same data has no discernible influence on the firm’s innovation capabilities. By contrast, information from customers and rivals directly affects a company’s back-end decisions, such as which bells and whistles might be added to a new product and which marketing strategies it should consider pursuing.
In other words, although companies shouldn’t treat information from suppliers as a distinct added value in the overall innovation process, they should recognize that it can help them develop a more flexible supply chain — which in turn assists in the rollout of new products.
Adaptability is crucial, the authors note, because it reduces the constraints on the new product development process, allowing engineers and marketers to tweak their offerings up until the last minute. What’s more, it enhances the likelihood of launch success, which also (unsurprisingly) boosts the firm’s bottom line.
Adaptability is crucial, the authors note, because it reduces the constraints on the new product development process.
Indeed, adaptability appears to be as vital to the success of product launches and company financial performance as does a firm’s overall innovation capability. Along with the discovery of the subtle differences among the impacts of supplier, customer, and competitor information, the authors highlight as a new finding the impact of adaptability.
The authors suggest that adaptability is something of a hidden weapon available to innovative firms. “Choosing more adaptable supplier relationships, assets, and investments may create valuable options for future innovative efforts.”
Still, most firms remain committed to a fixed idea of supply chain management, in which managers spend years carefully structuring their supply networks, balancing their physical assets, and forming mutually beneficial relationships with partners. But these rigid setups can severely limit a company’s innovation opportunities. Instead, managers would do well to consider such flexible mechanisms as short-term contracts, leased equipment and facilities, and outsourced business processes, thereby designing more adaptability (and, in turn, profitability) into their innovation efforts.
Source: “The Roles of Supply Chain Intelligence and Adaptability in New Product Launch Success,” by Tobias Schoenherr (Michigan State University) and Morgan Swink (Texas Christian University), Decision Sciences, Oct. 2015, vol. 46, no. 5